Business Economics - Law of Demand and Elasticity of Demand

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Description: THEORY OF DEMAND AND SUPPLYUNIT -1: LAW OF DEMAND AND ELASTICITY OF DEMANDAt the end of this Unit, you will be able to: 1. Explain the meaning of Demand. 2. Describe what Determines Demand. 3. Explain the Law of Demand. 4. Explain the difference between Movement along the Demand Curve and Shift of the Demand Curve. 5. Define and Measure Elasticity. 6. Apply the Concepts of Price, Cross and Income Elasticities. 7. Explain the Determinants of Elasticity. 8. Explain the Importance of Demand Forecasting in Business. 9. Describe the various Forecasting Techniques.SUMMARY• Buyers constitute the demand side of the market; sellers make the supply side of that market. The quantity that consumers buy at a given price determines the size of the market. • Demand means desire or wish to buy and consume a commodity or service backed by adequate ability to pay and willingness to pay • The important factors that determine demand are price of the commodity, price of related commodities, income of the consumer, tastes and preferences of consumers, consumer expectations regarding future prices, size of population, composition of population, the level of national income and its distribution, consumer-credit facility and interest rates. • The law of demand states that people will buy more at lower prices and less at higher prices, other things being equal. • A demand schedule is a table that shows various prices and the corresponding quantities demanded. The demand schedules are of two types; individual demand schedule and market demand schedule. • According to Marshall, the demand curve slopes downwards due to the operation of the law of diminishing marginal utility. However, according to Hicks and Allen it is due to income effect and substitution effect. • The demand curve usually slopes downwards; but exceptionally slopes upwards under certain cir
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